May 2021 TIV declined -19.0% MoM to 46.7k units, affected by supply disruption, worsening Covid-19 cases and Raya festive during the month. The growth +99.7% YoY and +89.1% YTD (246.0k units) were mainly due to low base effect. Note that May 2021 statistics lacks data from Mercedes, BMW, Mini, Peugeot and Scania. We maintain our 2021 TIV expectation at 585.4k units (+10.6% YoY), as we expect continued recovery in 2H21 (driven by SST exemption measures) to cover the inactivity in Jun 2021. We reaffirm our OVERWEIGHT call on the automotive sector with a stock selective approach (national marque bias) in view of the sales recovery in 2021. Top picks are MBMR (BUY; TP: RM5.20), DRB (BUY; TP: RM2.78) and Sime Darby (BUY; TP: RM2.68).

Overall TIV continued its MoM downtrend in May 2021, a drop of -19.0% MoM, to 46.7k units, mainly affected by chip supply issues, worsening of Covid-19 situation and Raya festive season (lower number of working days). Comparing SPLY, a significant rebound of +99.7% YoY was seen due to low base effect from MCO1.0 implementation since mid-Mar to mid-May 2020, resulting temporarily halt of the whole industry. Similarly, YTD TIV improved +89.1% YoY to 246.0k units due to low base effect. Despite the strict implementation of FMCO since Jun 2021, we are maintaining our TIV expectations of 585.4k units for 2021, a growth of +10.6% YoY, as we expect sales to rebound in 2H21, driven by extension of SST exemptions (car prices have reduced 2-7%; paultan.org) to Dec 2021 (from Jun 2021).

With the broader recovery in demand as consumer sentiment improves with the progress of vaccination program and eventual transition to lockdown relaxation and recovery plan in 2H21, we maintain our OVERWEIGHT rating on the sector. Our top picks include MBMR (BUY; TP: RM5.20), DRB (BUY; TP: RM2.78) and Sime Darby (BUY; TP: RM2.68). Over the longer term, we expect national marques to outperform non-national marques. MBMR has strong leverage onto the strong performance of Perodua and benefits from strong cash flow and dividend yield, while DRB taps onto Proton’s strong growth. We also like Sime Darby for its strong balance sheet and exposure to the China market rebound.

Note that no data was provided for the following:
1) Mercedes Malaysia has ceased to provide data;
2) Monthly sales for BMW and Mini for Apr-May 2021;
3) Monthly sales for Peugeot for Jan-May 2021;
4) Monthly sales for Scania for Oct-Dec 2020 and Mar-May 2021.

Perodua (UMW and MBMR) sales continued to slide -11.9% MoM to 18.0k units in May, attributed to the impact of the ongoing Covid-19 pandemic and the global semiconductor shortage. The OEM registered growths of +127.9% YoY and +81.9% YTD (96.3k units) due to low base effect on strict MCO1.0 implementation SPLY. Management is working with various suppliers to address the issue of semiconductor shortage. Management is still maintaining sales target of 240k units for 2021, indicating a targeted growth of 9% YoY.

Proton (DRB) also suffered a similar fate with 8.8k units in May (-40.2% MoM; +54.5% YoY). YTD sales improved by +103.5% YoY to 55.9k units with 22.7% market share. Despite the disruption, Proton managed to increase its export volume to 669 units during the month, the highest ever monthly export total since March 2013. The growth was driven by Pakistan, Egypt and Brunei. Management indicated the export is in-line with Proton’s 10- year turnaround plan in order to diversify of out of domestic Malaysia market. The next phase of export growth would be the commencement of CKD program in Pakistan and Kenya (potentially Egypt) and re-establishment into Thailand and Indonesia.

Honda (DRB) sales remained flattish +0.5% MoM at 5.1k units in May, this outperformed the market, as Apr month was already low. The sales was a growth of +90.9% YoY and +80.9% YTD (25.0k units) due to low base effect. Honda will continue to leverage onto the strong demand of the new City model as well as upcoming anticipated new City Hatchback model (replacing Jazz) in 2H21.

Toyota (UMW) registered 7.5k units in May, a drop of -18.0% MoM, affected by increasing number of Covid-19 cases and Raya festive season. Similarly, the OEM registered growths of +118.8% YoY and +142.7% YTD (33.6k units) due to low base effect, as well as recent successful new models launch. Management indicated it could potentially outperform its current sales target of 62k units (including Lexus) for 2020, indicating a growth target of 4.5%.

Nissan (TCM) sales has been relatively consistent at 1.4k units (-8.6% MoM; +129.6% YoY) in May. YTD sales were up by +69.6% YoY, slower than overall market movement of +89.1% YoY. Nissan is expected to maintain its strategy to avoid stiff pricing competition, while leveraging onto its core models: new Almera, Serena and Navara facelift.

Mazda (BAuto) recorded 1.4k units (-15.0% MoM; +170.8% YoY) in May and 5.3k units for YTD (+65.4% YoY). Upcoming attractive models for 2021 include CX-30 CKD, MX-30 and BT-50. Principal Mazda Japan has guided an expectation of 1.41m global Mazda car sales for FY03/22, a growth of 9.6% YoY despite guidance of supply chip shortage impact of 100k units. Hence, we do not expect material impact of global semiconductor shortage to Mazda sales volume in Malaysia.

Source: Hong Leong Investment Bank Research - 22 Jun 2021